Technical Update: Dow Jones Industrial Average

Technical Overview

  • On April 12, it was discussed how the DJIA continues to falter at its 2018 Resistance (red trendline in Figure 1), and that the index is exhibiting resistance in the 24,500 – 24,650 area (see confluence of green candles with upper shadows ending at the two horizontal yellow lines).
  • On April 13, the index opened higher, moved to a high of 24,646 and subsequently fell sharply, experiencing a 400-point intraday swing (last red arrow). This was yet another retest of the 2018 Resistance and the upper boundary of the 200-point resistance range (upper yellow line).
  • Today, April 16, the index opened just above the 2018 Resistance, pushed higher to an intraday high of 24,675, before pulling back by 100 points by EOD. The index also closed above its intermediate-term support (violet trendline).
  • The short-term support, which carried the index higher since the April 2 low, is rising by roughly 90 points/day – now at 24,270.

Figure 1. Dow Jones Industrial Average Daily Chart

Implications

  • The move back above both the 2018 Resistance and the intermediate-term support is deemed constructive. A close above 24,650 will further strengthen the bullish thesis.
  • To the downside, if the index breaks its short-term support, a swift move lower is expected. The extent of the leg down will be dependent on the index’s location in relation to the 2018 Resistance. On one hand, if the index pulls back below the red trendline over the next few sessions, the decline may take the index all the way down to retest the Feb 9 & April 2 lows (23,350). On the other hand, if the index continues to move higher for another 300-400 points and only then breaks the short-term support, the subsequent leg down is expected to terminate at the 2018 Resistance (which will then serve as a support).

Outlook

  • Neutral with a bullish bias while the index is above the 2018 Resistance but below 24,650.
  • A move above 24,650, on a closing basis, will shift the short-term outlook to bullish.
  • If the index breaks the short-term support, outlook will depend on the location of the 2018 Resistance.

Featured image courtesy of Shutterstock.

 

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